Many of those operators later boosted profits by up to 25 percent, he said.
In exchange for $5,000, the Arby’s managers got a 10 percent to 20 percent share of their units’ profits. “If thinking about every dollar that walks in the door, of it will be mine, you start to look at the world differently,” said Umphenour, who calls himself “a huge Truett Cathy fan.”īefore joining FOCUS Brands, Umphenour tried a similar plan with many of the managers at his 775 Arby’s restaurants he operated before selling in 2005. The result is highly motivated “operator” franchisees like Phillips, Bob Garrett and Melissa Winkfield, whose metro Atlanta restaurants generate annual sales of up to $4 million each - two or three times the average fast food restaurant’s volume - despite being open only six days a week.Ĭhick-fil-A’s profit-splitting arrangement is a huge motivator for operators, who would not get a share of profits if they were traditional employees, said Russ Umphenour, head of Atlanta-based FOCUS Brands, where he oversees Moe’s and five other fast-food chains. The company reported a $175 million profit for 2010 on systemwide revenue of $3.4 billion last year.Ĭompany officials say Chick-fil-A gets 10,000 to 25,000 applications for roughly 60 to 70 new slots that open each year. Meanwhile, Chick-fil-A collected about $841 million last year in rent, royalties and its share of operating profits from franchisee-operated restaurants - four times what the franchisees got. The formula seems to have worked well for both sides.īased on franchise disclosure documents and interviews with Chick-fil-A officials, the company’s roughly 1,100 operators took home operating profits of about $210 million last year, or an average of $190,000 each. It gets 15 percent of sales, collects rent on the property, and splits the remaining profit with the operator. Chick-fil-A retains ownership of the restaurant, and takes a much bigger cut of each store’s revenues and profits than at most franchises. The only cost its so-called “operator” franchisees shoulder up front is $5,000, but they can’t later sell the business or pass it on to their heirs. The company bankrolls the entire cost of its new restaurants and picks the locations. Truett Cathy turned that model on its head when he decided in 1967 to expand his business into a chain of restaurants. To join a major chain like KFC, franchisees typically need to shell out about $1.9 million before opening their doors, according to Don Sniegowski, editor of Blue MauMau, an online publication that tracks the franchise industry.īut Chick-fil-A CEO and founder S. They also pony up roughly 9 percent of sales to the company for advertising and rights to use its brand and sell its products. Would-be entrepreneurs pay an up-front franchise fee and the costs to build and open a new outlet. Normally, companies use franchising to speed up their growth by tapping outside investors’ money to build additional outlets. “They have shown us a lot of grace and love over the years,” said Phillips, who now runs a Chick-fil-A restaurant in Commerce. Then 23, she was already a Chick-fil-A veteran, having started at 16 in a shop in North DeKalb Mall.
“I look at it as a great opportunity,” said Margaret Phillips, who nearly 30 years ago scraped together $5,000 to take over her first Chick-fil-A store in Daytona Beach, Fla. It can shift strong-performing franchisees to bigger stores or give them more responsibility - much like employees - while firing up their entrepreneurial zeal. Because it owns all its restaurants - seemingly a contradiction in franchising - Chick-fil-A can move quickly into new products and markets. But a less known key to Chick-fil-A’s success is its unusual approach to franchising, which is almost unique in the restaurant industry.īoiled down, Chick-fil-A’s system allows the privately held company to be extremely choosy about who runs its restaurants, and to reward them well if they succeed - or get rid of them if they don’t.
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